Current account deficit sets another record

March 15, 2007|By From Tribune news services

WASHINGTON — The Commerce Department said Wednesday that the nation's current account in 2006 ended with a record deficit for a fifth year in a row despite the gap narrowing nearly 15 percent in the fourth quarter.

The shortfall in the current account, the broadest measure of trade because it includes transfer payments and investment income, swelled last year to an all-time high of $856.7 billion from $791.5 billion in 2005 and equaled a record 6.5 percent of gross domestic product.

But in the fourth quarter, the gap slipped to $195.8 billion, the lowest since the third quarter of 2005

Also last year, the U.S. ran a deficit on investment income for the first time since record-keeping started in 1929. Investment flows turned negative by $7.3 billion from a surplus of $11.3 billion in 2005. That means foreigners earned more on their U.S. holdings than Americans earned on their overseas investments.

Analysts said the figure turned negative because of the large amount of U.S. assets transferred to foreign hands over the past three decades to pay for imported cars, clothing and electronics that U.S. consumers love to buy.

The current account deficit might narrow this year for the first time since 2001, as U.S. exports rise and oil prices stabilize, economists said.

"I think we're going to see further improvement in 2007, as a more competitive dollar and global growth help U.S. exports," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

The gap in the fourth quarter amounted to 5.8 percent of GDP, down from 6.9 percent in the third quarter. Economists said a lower bill for imported crude oil helped cut the gap.

In the fourth quarter, U.S. investors received more income on their holdings of overseas investments than foreigners received here.

Income on overseas assets held by U.S. investors rose to $167.3 billion from $158.9 billion. Foreign earnings on U.S. assets, including wages, fell to $164.2 billion from $164.4 billion. The nearly $3 billion surplus compares with a $5.5 billion third-quarter shortfall.

Figures this quarter suggest the trade gap might continue to shrink. The January shortfall fell to $59.1 billion from $61.5 billion in December, as imports declined and U.S. exports rose to a record.